Freddie Mac: Buy Sooner Rather than Later

Freddie Mac: Buy Sooner Rather than Later | Simplifying The Market

In a recent video update on the housing market, Frank Nothaft, Freddie Mac’s chief economist, stated that with both mortgage interest rates and home prices projected to increase in 2015 buying now makes sense.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later.”

Here are the latest mortgage interest rate projections from four major housing entities: Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR):

Mortgage Rate Projections | Simplifying The Market

Thinking of Selling & Moving Up?

This advice isn’t limited to just the first time buyer. If you are considering moving up to the home your family has always wanted, waiting also makes no sense.

A Home’s Cost vs. Price Explained

A Home’s Cost vs. Price Explained | Keeping Current Matters

In real estate there is a difference between COST and PRICE. As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As either a first time or repeat buyer, you must not be concerned about price but instead about the ‘long term cost’ of the home.

Let us explain.

Recently, we reported that a nationwide panel of over one hundred economists, real estate experts and investment & market strategists projected that home values would appreciate by approximately 4% from now to the end of 2015.

Additionally, Freddie Mac’s most recent Economic Commentary & Projections Table predicts that the 30 year fixed mortgage rate will be 5.0% by the end of next year.

What Does This Mean to a Buyer?

Here is a simple demonstration of what impact these projected changes would have on the mortgage payment of a home selling for approximately $250,000 today:

The Cost of Waiting A Year | Keeping Current Matters

Don’t Wait! Move Up to the Home You Always Wanted

Don't Wait! Move Up to the House You've Always Wanted | Keeping Current Matters

Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. Prices are still below those of a few years ago and interest rates are still below 5%.

However, sellers should realize that waiting to make the move while mortgage rates are increasing probably doesn’t make sense. As rates increase, the price of the house you can buy will decrease.

Here is a chart detailing this point:

Buyer's Purchasing Power | Keeping Current Matters

Be Quiet Chicken Little! Real Estate is Just Fine

Be Quiet Chicken Little! The Sky is Not Falling | Keeping Current Matters

The latest Existing-Home Sales Report from NAR revealed that sales decreased 1.8 percent in August. Many might start to panic, but let’s see what the report really shows.

Lawrence Yun, NAR chief economist explains “there was a marked decline in all cash sales from investors. On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”

There is Still A LOT of Good News:

  • The median existing-home price for all housing types in August was $219,800, which is 4.8 percent above August 2013. This marks the 30th consecutive month of year-over-year price gains.
  • 40% of homes sold in August were on the market for less than a month.
  • Distressed home sales remain at single digits for the second straight month, at 8%, down from 12% last year this time.
  • More buyers qualified for mortgages to purchase a home in August, as evidenced by the decline in the number of all cash buyers from 29% to 23%.

New Home Sales Surge:

Newly built single-family home sales surged 18% in August, the highest level in six years according to new data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The Experts Agree:

“This robust level of new-home sales activity is a good sign that the housing recovery is moving towards higher ground,” said NAHB Chief Economist David Crowe. “Historically low mortgage rates, attractive home prices and firming job and economic growth should keep the housing market moving forward in 2014.”

Yun adds, “As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”

Bottom Line

Now is still a great time to buy a home, whether as a first time homebuyer or you’re moving up to the home of your dreams, don’t let the headlines scare you from making the best decision for your family.

Either Way, You’re Still Paying a Mortgage

Either Way, You're Still Paying A Mortgage | Keeping Current Matters

There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s. As a paper from the Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Also, if you purchase with a 30-year fixed rate mortgage, your ‘housing expense’ is locked in over the thirty years for the most part. If you rent, the one guarantee you will have is that your rent will increase over that same thirty year time period.

And, as an owner, the mortgage payment is a ‘forced savings’ which will allow you to have equity in your home you can tap into later in your life. As a renter, you guarantee the landlord is the person with that equity.

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are still at bargain prices.

You’ve Played the Housing Market Perfectly. Don’t Blow it Now!

You've Played the Real Estate Market Perfectly! Don't Blow It Now! | Keeping Current Matters

Many people suffered through the housing crisis. We realize that most of the heartache was the result of a housing and mortgage market gone wild. Many consumers were swept away by the waters of a frenzied real estate market that resulted in a crisis even the experts didn’t see coming.

However, some of the suffering was caused by home buyers and home owners simply making bad decisions. NOT YOU! You didn’t buy that house that stretched your family finances past the point of sustainability. You didn’t take out a home equity loan and buy new water skis. You didn’t do a cash-out refinance for the maximum amount possible.

Instead, you bought a home your family could enjoy – and afford! You waited for interest rates to drop to historic lows and then refinanced your mortgage; not for the sake of taking cash out but instead to lower your monthly payment.

You have equity in your house and a nice, low mortgage payment. You played the housing market perfectly.

Don’t Miss the Last Move

Yet, there is one more move many should consider. With interest rates still at historic lows, and prices projected to increase by almost 20% over the next four and a half years, this may be time to buy a new home.

Whether, you are a growing family ready to move-up to that waterfront home you always wanted or an empty nester downsizing to a home that makes more sense, now may be the time to buy. If you have considered buying a vacation/retirement home, there may never be a better time to move forward with that plan.

You have been fiscally astute enough to navigate the treacherous waters of a housing market that sank many a homeowner. Now, that the seas have settled, don’t think there aren’t even greater opportunities on the horizon.

Moving Up: Was it Worth Waiting?

Moving Up? Do it Now!! | Keeping Current Matters

New reports are revealing that the number of months’ inventory of existing homes available for sale is increasing. Some of these sellers are moving up, some are downsizing and others are making a lateral move.

There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.

Assume, last year, they had a home worth $300,000 and were looking at a home for $450,000 (putting 10% down they would get a mortgage of $405,000). By waiting, their house appreciated by approximately 10% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $330,000. But, the $450,000 home would now be worth $495,000 (requiring a mortgage of $420,000 assuming the original $45,000 down plus the additional $30,000 from the sale of their home).

Here is a table showing what the difference in monthly cost (principal and interest) would be if a purchaser had waited:

Cost of Waiting: Was it Worth It? | Keeping Current Matters

3 dollars and 27 cents. Was it worth waiting a year to move up to the home of your dreams? Only you can answer that question.

Moving Up?

If your family plans on moving up in the next twelve months, it may make sense to move now rather than later. Prices are definitely still appreciating and, unlike the last year, interest rates are also projected to increase.

Buying a Home? Know ALL Your Options

Buying a Home? Know ALL Your Options | Keeping Current Matters

In a post earlier this week, we suggested that the Millennial generation’s struggles with student debt and the overarching concept of homeownership are not the reasons for so many first time buyers hesitating to move forward with the purchase of their first home. Now there is another firm suggesting the same. The asset management company, Nomura, came out with strong guidance to their investors. According to an article in Housing Wire last week:

“Nomura’s note to clients has a take few have offered: The first time homebuyers are holding out and it’s not student debt, a shift away from homeownership as a choice by Millennials, or any of that.”

Instead, they think it is a lack of a full understanding of the mortgage process. The article explains:

“Analysts say it’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment. It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)

This comes off the heels of a survey by Zelman & Associates that revealed that 38% of those between the ages of 25-29 years old and 42% of those between the ages of 30-34 years old believe that a minimum of 15% is required as a down payment to purchase a home. In actually, a purchaser may be able to put down far less.

The Reality of the Situation

According to Christina Boyle, Freddie Mac’s VP and Head of Single-Family Sales & Relationship Management, in a recent Executive Perspectives piece:

  • A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
  • Freddie Mac’s purchase of mortgages with down payments under 10 percent more than quadrupled between 2009 and 2013.
  • More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 percent or less.
  • Qualified borrowers can further reduce the down payment coming out of their own pockets to 3 percent by lining up gifts from family or grants or loans from non-profits or public agencies.

Ms. Boyle goes on to explain:

“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines. Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 or 10 percent.”

Bottom Line

If you have considered purchasing a house or moving-up to a new dream home, know all of your options. Reach out to a real estate and/or mortgage professional in your marketplace to get the best, most up-to-date information available. You may be surprised to learn what you and your family are capable of achieving.